The Reserve Bank of Australia (RBA) is widely expected to leave the Official Cash Rate unchanged at 4.35% when it announces its monetary policy decision on Tuesday, marking a pause after three consecutive rate hikes delivered earlier this year.
The decision will be announced at 04:30 GMT, accompanied by the Monetary Policy Statement (MPS). RBA Governor Michele Bullock’s press conference will follow at 05:30 GMT.
The RBA policy announcement and Bullock’s presser could trigger a big reaction in the Australian Dollar (AUD), as markets eagerly await signals on the bank’s path forward on interest rates.
RBA pauses, end of the tightening cycle?
While inflation remains stubbornly elevated and continues to pressure households, a growing number of signals suggest the Australian economy may be losing momentum. Higher borrowing costs have started to weigh on consumer demand and early signs of labour market cooling are emerging.
Data from the Australian Bureau of Statistics (ABS) showed that Gross Domestic Product (GDP) grew 0.3% quarter-over-quarter (QoQ) in the first three months of the year, compared with a forecast of 0.5% and decelerating from 0.9% in the prior quarter. Annual growth steadied at 2.5% in the same period, below the 2.7% expected.
Meanwhile, the country’s Unemployment Rate jumped to 4.5% in April, the highest since September. The monthly Consumer Price Index (CPI) inflation slowed to 0.4% in April from 1.1% in March, while the annual pace also declined to 4.2% from 4.6%.
The central bank, therefore, finds itself balancing inflation that remains above target and an economy that appears to be slowing down.
“Markets now imply just a 22% probability of an August RBA hike, down from 80% a month ago, and just 11 bps of tightening this year as higher interest rates have started to slow economic activity,” per Reuters.
The shift in sentiment accelerated after National Australia Bank (NAB) ditched its peers by suggesting the RBA’s next move could eventually be a rate cut rather than another hike.
Three of the four major banks, NAB, Commonwealth Bank of Australia (CBA), and Australia and New Zealand Banking Group (ANZ), expect the RBA to leave the cash rate at 4.35% for the remainder of 2026.
For now, policymakers are likely to maintain a cautious tone, acknowledging persistent inflation pressures while emphasizing increased uncertainty surrounding growth, employment and household spending.
The main focus will be on whether the reopening of the Strait of Hormuz is enough to calm the central bank’s inflation concerns and to signal a pause in the current tightening cycle.
“It’ll be about the little clues as to whether the cycle is over or it’s still alive – that’s going to be really important for both the Aussie and the kiwi markets,” said Imre Speizer, a strategist at Westpac.
How will the Reserve Bank of Australia’s decision impact AUD/USD?
The AUD has rebounded firmly against the US Dollar (USD) in the countdown to the RBA event risk.
The key market takeaway will therefore be any change in the RBA’s forward guidance. A statement retaining a tightening bias could revive expectations for an August rate increase and support the Aussie Dollar.
Conversely, any indication that the central bank is becoming more concerned about growth risks could reinforce market pricing for a prolonged pause and weigh down on the AUD.
Dhwani Mehta, Asian Session Lead Analyst at FXStreet, highlights key technical levels for trading AUD/USD following the policy announcement.
“The pair is challenging the key 100-day Simple Moving Average (SMA) on the road to recovery. The 14-day Relative Strength Index (RSI) has bounced off the oversold territory, but remains in the bearish zone, suggesting that sellers are likely to retain control.”
“On the topside, initial resistance emerges at the 100-day SMA near 0.7084, followed by the 21-day SMA around 0.7116 and the 50-day SMA close to 0.7143, levels that would need to be reclaimed to ease the current downside pressure. On the downside, the 200-day SMA at roughly 0.6844 offers the next major support, with a sustained break below that long-term average likely opening the door to a deeper retracement,” Dhwani adds.
Australian Dollar Price This Year
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies this year. Australian Dollar was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 1.26% | 0.37% | 2.34% | 2.04% | -5.62% | -0.96% | 0.14% | |
| EUR | -1.26% | -0.94% | 1.12% | 0.84% | -6.45% | -2.12% | -1.04% | |
| GBP | -0.37% | 0.94% | 2.06% | 1.77% | -5.56% | -1.20% | -0.10% | |
| JPY | -2.34% | -1.12% | -2.06% | -0.37% | -7.67% | -3.67% | -2.02% | |
| CAD | -2.04% | -0.84% | -1.77% | 0.37% | -7.33% | -3.31% | -1.86% | |
| AUD | 5.62% | 6.45% | 5.56% | 7.67% | 7.33% | 4.62% | 5.78% | |
| NZD | 0.96% | 2.12% | 1.20% | 3.67% | 3.31% | -4.62% | 1.11% | |
| CHF | -0.14% | 1.04% | 0.10% | 2.02% | 1.86% | -5.78% | -1.11% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
